By acquiring Grupo Financiero Banamex-Accival, Citigroup Inc. already far and away the largest credit card issuer in the United States would make an aggressive foray into the Mexican card market, in which a Banamex subsidiary, Banco Nacional de Mexico, is the leading card company.
One interesting aspect of the deal is that the Mexican bank, which primarily issues Visa and MasterCard cards, also distributes American Express cards, which are issued by an Argentine subsidiary, Ban Sud. U.S. banks are not allowed to issue Amex cards, but their foreign subsidiaries can.
Not only is Banamex the biggest card issuer in Mexico, but it also mirrors Citigroup in being one of the most technologically nimble banking companies. During the last decade Banamex has been forming partnerships with U.S. companies to develop card technologies.
By folding Banamex into its global business, Citigroup would lay its hands not only on some of Mexicos most affluent citizens but also a sophisticated cards operation that rivals and cooperates with many of the top U.S. issuers.
During the past seven years Banamex has entered different kinds of alliances with Wells Fargo & Co., Bank One Corp., and Union Bank of California. These alliances, which addressed a range of areas from fraud protection to card processing, were depicted as safe opportunities for American companies to dip their toes in the otherwise risky credit market in Mexico, where there are no credit bureaus to gauge consumer creditworthiness.
Banamex also has a sophisticated line of card products, including numerous cobranded cards (such as one with Continental Airlines) and affinity cards that benefit various colleges and universities. Its private-label portfolio includes a card issued on behalf of K-Mart Mexico S.A.
Banco Nacional de Mexico is one of several dozen non-U.S. banks that have cut deals with American Express Co. to distribute its cards. Visa and MasterCard rules prohibit U.S. banks from issuing cards under the Amex name, but the rules do not apply to foreign banks.
The antitrust suit argued last summer in U.S. District Court in the Southern District of New York was meant to settle the question of whether it is legal for the card associations to block Amexs access to their U.S. members, but no decision in that case has been issued.
According to a person familiar with card association rules, FleetBoston Financial Group also faced the question of foreign subsidiaries after it bought a Brazilian bank that issued Amex, Visa, and MasterCard cards.
Nevertheless, the situation with Citi and Banamex could draw more attention to the rules, which could grow more difficult to interpret as banks merge across national borders.
Robert Landry, vice president of research at TowerGroup, a consulting firm in Needham, Mass., called Citigroups deal a smart and perhaps necessary move.
The deal is consistent with Citigroups focus on the cards business, he said. In an emerging market like Mexico, credit cards only go to the affluent segment of the market, the top 10%. I think thats why they would find Banamex attractive.
But Lynn Drury, group executive of the international division of TSYS Inc., which handles the card processing operations for several of the largest Mexican banks, including Bank Bital and Serfin, said he was surprised by Banamexs surrender of its card operations. I would have thought Banamex was the last company in the world to give up ownership, but then money talks, doesnt it?
TSYS also does processing for California Commerce Bank, a subsidiary of Banamex.
Until last year, Mr. Drury said, Citigroup had outsourced its Mexican cards processing to TSYS. Last year it ended that contract as part of an effort to bring its operations in-house, he said. Banamex, which formed a processing company as a joint venture with Bank One in 1992, also does its own processing now.